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DD309-16J Doing Economics: People, Markets And Policy

TMA01 The assignment

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Important: These pages provide guidance on how to write your assignment. Please ensure you read all of this information right through until the checklist at the end.

Before you start work on this assignment, please ensure that you have read the Assessment Guidance specific to this module and are familiar with the advice in Social Sciences Assessment Information. These sources contain support and guidance that you may need in writing your TMA including, for example, advice on plagiarism, referencing and the marking system. Note that failure to comply with relevant guidance could result in the loss of marks or other penalties.

There are two parts to this TMA. Answer Part A and Part B, noting the word limits. On the following pages you will find guidance on how to complete each of the different parts of this assignment.

Part A (40% of the marks)

Farah spends a monthly budget of £200 on ‘essentials’ (for example rent) and ‘treats’ (such as the occasional bar of chocolate). Assume that both ‘essentials’ and ‘treats’ are normal goods. The average price of an essential is £20 per unit and the average price of a treat is £5 per unit.

Assume Farah’s preferences have diminishing marginal rates of substitution of essentials for treats. Draw, label and explain Farah’s indifference map and the point of utility maximisation on the budget constraint. Explain why the point is unique. (10 marks)

Assume that the average unit price of essentials increases to £40 and that they are a normal good. Illustrate (with a diagram) and explain the consequences of this price change on the utility maximising combination of essentials and treats. Ensure that you discuss in full both the substitution and income effects. (12 marks)

Farah expects an income of £2400 this year. He can spend it this year, or save some income for next year. If he saves all this year’s income, he could expect a total income of £3000 next year. Illustrate and explain, with the aid of two diagrams,the utility maximising consumption patterns assuming Farah is

(a) patient and (b) impatient.(10 marks) Word limit: 500 words

Part B (60% of the marks)

‘Households improve outcomes compared with living by oneself.’ Drawing on different theoretical approaches to the economics of household decision making, write an essay explaining the degree to which you agree or disagree with this statement, illustrating your answer with examples.

Word limit: 1500 words

In the following pages, you will find:

learning outcomes addressed by this assignment

student notes for each part of this assignment

a checklist to ensure you have done everything required for this assignment.

Learning outcomes

This assignment gives you the opportunity to demonstrate the following learning outcomes:

Knowledge and understanding You should demonstrate a sound knowledge and understanding of:

the microeconomic theory of consumption at post-introductory level with applications

the main features, strengths and weaknesses of standard neoclassical microeconomic theory and alternative theoretical approaches

key ideas, theories and debates in microeconomic theory with applications to current issues in various areas, such as consumption and households.

Part A draws mainly on Chapter 2, Section 2. The questions assess your understanding of some of the main components of the neoclassical theory of consumption. The online tutorials about indifference curves I, II and III may also provide some useful guidance. Different applications can be found in the online tutorials ‘Indifference curves IV’ and ‘Indifference curves VI’. The questions give you an opportunity to practise incorporating information into diagrams and these diagrams should be fully labelled as a result.

Part B invites you to demonstrate an understanding, in an essay, of economic arguments for living in households – which are usually family-based units. Possible benefits associated with living in households are discussed in Chapter 4, particularly Section 2 on the economic benefits as well as Section

3 on caring. Different models of decision making in households are discussed in Sections 4 and 5 and a selection of them should be used to help you evaluate the benefits of household living. You should include a discussion of the distribution of benefits and costs within the household at some point. Finally, whilst the models should be the focus of your answer, you are invited to draw on relevant empirical examples that demonstrate you can apply theory. Examples can be drawn from personal experience, module materials or, if you wish, relevant materials from other sources. In short, you should demonstrate your understanding of at least two approaches to household decision making and your ability to make connections between theory and evidence that either confirms/rejects theory or shows how theory can be applied to understand particular situations.

When writing an essay, do remember to define the key terms early on and don’t feel you need to include everything. Focus on using economic theory to make the points you wish to make. Traditionally, essays have a beginning that tells the reader about the structure and motivation of the essay, a middle section that explores the main issues, possibly in some kind of sequence, and a short conclusion that brings together the key points you feel the essay has established. When writing your essay, ensure you make full use of the word allowance in order to make good and relevant points that give a full answer to the question.

Reflections on the assignment (not marked)

The purpose of this section is to enhance the dialogue you have with your tutor. You will receive better feedback and guidance if your tutor is well informed about your experience with the module materials. Here are some prompts that will help your dialogue about this TMA:

What were the main challenges you encountered while working on the questions in the two parts of the TMA?

Did you find any part particularly difficult?

To what extent did you overcome the challenges you identified?

Would any other support have been helpful?

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